Contracts
Steven Thel
Fall 2012

Contract:
An oral or written agreement between two or more people, an exchange
relationship, at least one promise, enforceable.

Mutual Assent: each party must intend to enter the contract and must agree
to do so on mutually agreeable terms.
      Assent: is legally sufficient if each party, by the deliberate use of
      words or conduct, manifests agreement to be contractually bound.
      Lucy v. Zehmer – joke and intoxication was not enough to get Zehmer
      out of a contract that Lucy took seriously.

Offer & Acceptance
    • Offer creates a power of acceptance in the offeree so that she can
      bring the contract into existence.
         o A counter offer will terminate/reject the original offer and
           create a new offer
         o RS24: An offer is a manifestation of willingness to enter into a
           bargain, so made as to justify another person in understanding
           that his assent to that bargain is invited and will conclude it.
               ▪ Offer must convey a reasonable understanding that the
                 offeror intends a contract and not merely a proposal to
                 contract
         o RS 40: face to face conversation when an offer is made the
           acceptances must occur before the close of the conversation and
           no contract is made unless there is an indication that the offer
           is intended to continue beyond the immediate circumstances
         o When an offer terminates; RS36:
               ▪ Silence/inaction cannot constitute acceptance
               ▪ Cannot reject and then accept; that would be a
                 counteroffer of sorts
               ▪ A counteroffer terminates an offer
               ▪ Offeror’s death or mental disability before acceptance
                 terminates offer
               ▪ Offeror can revoke at any time before acceptance, unless
                 there is an option to keep the offer open (notice required)
                     • Indirect revocation if the offeree finds out from 3rd
                       party that the offer has been revoked (Dickenson v.
                       Dodds – after Dickenson found out Dodds sold the
                       offered property to another he communicated his
                       acceptance but was too late)
               ▪ RSC 42: Power of acceptance is terminated when offeree
                 receives manifestation of intention not to enter into
                 proposed contract
               ▪ RS 43: power of acceptance is terminated when offeror
                 takes action inconsistent with an intention to enter into
                 proposed contract and offeree acquires reliable information
                 to that effect
               ▪ After some reasonable amount of time termination occurs
                 as well.
    • Mirror image rule requires that the acceptance exactly matches the
      offer; modern trend is to only treat material altercations as
      violating the mirror image rule.
         o Price is a material alteration
               ▪ a mere request to modify the terms may keep the offer
                 open without rejecting and proposing a new counteroffer;
                 i.e. “ Thanks for your offer. Would you accept $?” rather
                 than “I cannot accept your offer it is too high.  Will you
                 accept $?”
    • Mailbox rule – if the acceptance is mailed to the offeror, it becomes
      effective upon dispatch assuming that acceptance was properly mailed
      with postage and correct address
         o Parties can choose to allocate risk
         o RS64: acceptance by telephone or other medium of substantially
           instantaneous two way communication is treated the same as if
           the parties are physically present
    • Advertisements: normally an invitation and not an offer, but it can be
      seen as a unilateral contract if it makes a promise such as “X units
      available, first come first serve.”

Bilateral & Unilateral Contracts
    • Bilateral is most common and it involves mutual promises for future
      performance
    • Unilateral contracts may occur when the act of assent merges with the
      performance, at which point of acceptance only one party has an
      outstanding obligation to perform.
    • When offer does not clearly prescribe promise or performance (i.e. “I
      offer to sell Blackace for $2M. If you wish to buy it you must pay $2M
      by Friday in my office”) he may be indifferent in which case the
      offeree can accept by either mode.  Accept with a promise for future
      performance in eager to close deal (bilateral) or accept and perform
      at the same time (unilateral).
         o RS62 and RS45 give legal effect to the commencement of
           performance, so that if acceptance is by performance, the
           offeror cannot terminate the contract before performance is
           complete without legal redress.
               ▪ RS62: Offeror does not mandate acceptance by performance.
                 Commencement/tender of performance constitutes an implied
                 promise to complete the performance serving as a quasi-
                 acceptance creating a bilateral contract.
               ▪ RS 45: if performance is the exclusive mode of
                 acceptance, the beginning or tender of performance creates
                 an option in favor of the offeree, so that the offeror
                 loses the right to revoke once performance has begun but is
                 free from his duty if the offeree fails to complete
                 performance.

Irrevocable Offers: Options and Firm Offers
    • Option is a promise to keep an offer open for a stated period of time,
      for which there must be consideration in exchange.
         o RS87(1)(a): the grant of an option is valid if it is in writing,
           signed by the grantor, recites a purported consideration for the
           offer, and proposes an exchange on fair terms within a
           reasonable time.
               ▪ The consideration can be nominal and even a sham, for the
                 option creates an irrevocable opportunity to accept which
                 promotes economic exchange.
                     • RS63: Mailbox rule does not apply to acceptance of an
                       option because do not need additional safeguards for
                       the offeree
         o Binding commitment not to revoke the offer.
    • Firm offers (UCC):
         o UCC 2-205: No consideration needed for an option that lasts less
           than 3 mos. if (1) the offer to buy/sell goods must be made by a
           merchant, (2) offer must be signed in a writing, (3) assurance
           to the offeree that it will be held open, (4) offeree must sign
           the assurance separately.

Standard Form Contracts & Contracts Through Electronic Media
    • Boilerplate term contracts are generally treated with traditional
      rules of the objective test (reasonable perception of intent) and
      offer/acceptance.
    • Box top terms are standard and discernable to the buyer on the box of
      an item
    • Shrinkwap terms are standard but not discernable until after the
      contract is made.
         o Gen’ly once a K is made a party cannot unilaterally add terms or
           modify the K
               ▪ Any change must be agreed upon by both parties
         o Exception: shrinkwrap terms are acceptable if the buyer should
           have reasonably expected the contract to be subject to such
           terms
               ▪ Distinguished from rolling contracts which O/A does not
                 occur at same point of purchase
    • Clickwrap terms are treated the same as signing a standard form
      contract if the terms must be agreed to/accepted before purchase of
      the software.  Claiming that buyer did not read the terms is not valid
      based on the objective test.  If the terms are agreed to after the
      purchase of the software it is treated like shrinkwrap terms.
    • Browsewrap terms have no affirmative feature of assent but rather
      require the buyer to read them and it is implicitly acknowledged when
      buyer makes the purchase.
    • Conspicuousness, Notice, and Reasonable Expectations:
         o Courts are more likely to enforce standard terms if they are
           fair and reasonably expected
         o If a court thinks a nondrafting party did not have notice of a
           term and would not have reasonably expected it (such as a buried
           in fine-print boilerplate term) it will be less likely to
           enforce it.
               ▪ Where a person has reasonable notice of intelligible
                 terms, she has a duty to read the terms, and her
                 manifestation of assent binds her whether or not she read
                 them.
    • Adhesion and Unconscionability in Stnd. Ks:
         o Adhesion Contract: proferred on a take-it-leave-it basis by a
           party with market power to refuse to contract except on standard
           terms that tend to be very one-sided and favorable to drafting
           party (credit cards, insurance)
               ▪ the terms are non-negotiable, and oftentimes since there
                 is little competition so courts may construe assent to
                 adhesive terms that are harsh, oppressive, or unexpected as
                 unenforceable.
                     • Sometimes notice of the terms is irrelevant on a
                       principle of unconscionability. Both procedural and
                       substantive unconscionability must be met for it to
                       be enough for the contract to be unconscionable.  It
                       is not enough the contract is more favorable to one
                       party.
                          o Procedural unconscionability: imposed on a
                            party by unfair means
                          o Substantive unconscionability: the term itself
                            is unfair or unduly harsh or one-sided

    • Deferred Communication of Terms
         o Terms that appear after the time of contract such as airline
           tickets or shrinkwrap terms.  They are gen’lly held to be
           binding if the standard terms are reasonable and reasonably
           expected.
    • Rolling Contracts
         o Final assent is deferred until after the nondrafting party has
           an opportunity to read the terms.  No final contract is made at
           point of purchase but rather delivery of the standard terms upon
           delivery of the goods is an offer, which is accepted if buyer
           does not reject within a reasonable time by declining the
           benefit of the contract.
               ▪ ProCd v. Zeidenberg: consumer version and commercial
                 version of same software sold—buyer bought the consumer
                 version and used for commercial purposes.  The shrinkwrap
                 terms said may not be used for commercial purposes. The
                 terms must be agreed to be can use software with option to
                 return if don’t want to accept license agreement.  ProCD
                 sought injunction and won because the acceptance occurred
                 upon accepted the terms and not returning the software.
                 The terms were reasonable and expected due to the reduced
                 consumer price.
                     • If P prevails consumers will be worse off in the
                       future bc price discrimination is a good thing and
                       encourages people to enter into voluntary contracts.
    • Contracting by Automated Means: treat the automated system as an
      electronic agent but under the objective test has manifested
      contractual intent.

Mismatching Standard Terms: The Battle of the Forms UCC 2-207
    • UCC 2-207: applies only where the agreement qualifies as a sale of
      goods.  Also it deals with buyer/seller contracts with conflicted
      terms that neither party read or regarded after the contract was
      formed.
         o 2-207(1) covers offer and acceptance and written confirmation of
           an oral agreement.
         o Disregards the “mirror image rule” and allows a contract to be
           formed when the intent is to do that although there may be
           competing contract terms.
               ▪ Common law has the “last shot” rule which would treat the
                 acceptance as a counteroffer, and the delivery as
                 acceptance therefore using the terms of the counter offer.
                 UCC rejects this and treats the “counteroffer” as
                 acceptance so the contract ends up on the offeror’s terms.
                     • If the acceptance is treated as a counteroffer the
                       conflicted terms are replaced by a gap filler
                       supplied by law. Under 2-207(1):
                          o An acceptance is a definite and seasonable
                            expression of acceptance even though it states
                            terms additional or different from those
                            offered.
                          o A counteroffer is a definite and seasonable
                            expression of acceptance unless acceptance is
                            expressly made conditional on assent to the
                            different terms
         o 2-207(2) deals with proposals in an acceptance: additiaonl terms
           are construed a proposals for addition to the contract, between
           merchants, and such terms become part of the contract unless:
           (1) the offer expressly limits acceptance, (2) they materially
           alter it (goods sold, price, payment or delivery terms), (3) or
           notification of objection to them has already been given or is
           given within a reasonable time.
               ▪ The effect of this is to exclude most additional terms
                 when they are included in an acceptance.
               ▪ This section does not discuss “different” terms, only
                 “additional.” Ways to treat different terms under 2-207(2):
                     • (1) treat different as interchangeable with
                       additional, (2) exclude different terms altogether,
                       (3) “knockout rule” – treat conflicting terms as
                       canceling each other out and use a gap filler.
         o 2-207(3): effect of mutual performance when no contract is
           formed; conduct by both parties recognizes existence of a
           contract us sufficient to establish a contract for sale,
           although the writings of the parties do not otherwise establish
           the contract.  In such a case, the terms of the particular
           contract consist of those terms on which the writings of the
           parties agree together with any supplementary terms incorporated
           under any other provisions of this act.
               ▪ Seeks to avoid the CL last shot rule whereby the
                 performance of the offeror is seen as acceptance to a
                 counteroffer; instead this section supports the knockout
                 rule.

Consideration
    • Can be used with a lot of discretion to effectuate the police power of
      the courts.  Will be construed when it is clear there was strong
      intent by both parties to form a contract and will be deemed non-
      existent if possible when surrounded by fraud, duress, or
      unconscionability.
    • Basic element of all contracts but can be substituted on theories such
      as promissory estoppel, restitution, moral obligation.
    • Represents reflection, contemplation, intention.
         o A purely gratuitous promise that does not have any quid pro quo
           cannot be enforced as a contract.
               ▪ Once a gift is executed, no claim for lack of
                 consideration can be made
    • Detriment, Benefit, and Bargained for Exchange:
         o Bargain theory of consideration: parties must bargain for an
           exchange of the promise for the detriment, so that each induces
           the other.
               ▪ RS71: a performance or return promise must be bargained
                 for to constitute consideration
         o Detriment: any relinquishment of a legal right; an act,
           forbearance, abandonment of a right (can even benefit the party
           while to his detriment).  A promise to do something in the
           future is an abandonment of the legal right not to do it.
               ▪ RS79(a): if the requirement of consideration is met,
                 there is no additional requirement of loss or disadvantage
                 to the promisee (i.e. the consideration can be the
                 detriment to quit smoking)
               ▪ Hamer v. Sidway: Uncle promised $5k to nephew if he
                 refrained from drinking, tobacco, swearing, gambling until
                 21. Uncle died before payment and nephew was able to
                 recover from the estate because the legal detriment to
                 refrain was consideration.
                     • RS79(a): a gain or advantage to the promisor is not
                       requirement for consideration. (quitting smoking does
                       not seem like a benefit necessarily to the promisor
                       but it is sufficient for the bargain theory)
         o Incidental detriment that is not bargained for would include
           walking to my office as a condition to pick up a gift, or
           holding out your hand to receive money.  Clearly this is not the
           price of the performance.
               ▪ A promise to use a gift as required by the donor is not a
                 detriment, because before the gift no legal right existing
                 to use it in any way.
    • Consideration in Gratuitous (Donative) Promises
         o Consideration allows courts to see evidentiary indication a
           contract was intended (evidentiary purpose), allows them to
           distinguish between contractual commitments and mere informal
           expressions of intent (cautionary purpose), and makes the
           promisor aware that she has made a serious legal commitment
           (channeling purpose).
         o The law should not hold a person to a promise that was made
           gratuitously; should not hold a promise motivated by affection,
           generosity, or altruism lacking in any return benefit.
               ▪ Alternative basis for enforcing charitable promises if
                 promisee has acted in reliance and assert promissory
                 estoppel.
               ▪ Dougherty v. Salt- Plaintiff Dougherty, at eight years
                 old received a promissory note from his aunt for $3,000
                 payable at her death. Defendant Salt is representing Aunt’s
                 estate.  Although a note states that value has been
                 received, if value has not in fact been received, the note
                 is unenforceable as a contract for lack of consideration.
                 The promissory note is not enforceable because there is no
                 consideration. Although the form indicated that the note
                 was for value, the Court determined that no value had in
                 fact been given. Because Plaintiff was not a creditor of
                 Aunt and there was no other value given, the note is
                 unenforceable due to lack of consideration.
    • Pre-existing duty rule: A agrees to sell home to B for 400k, realizes
      it is worth 450k, and B agrees to pay additional 50k, this amendment
      is unenforceable since there was a pre-existing duty to transfer for
      400k under the K and no consideration was given for the additional
      50k. Even after B pays additional money he is entitled to get it back.
      Another example is that a creditor who agrees to lessen terms of debt
      or change method of payment is not bound because the debtor had a pre-
      existing duty to satisfy the debt.
         o Policy: to avoid threat of breach after contract and coerce
           promisee to give additional detriment for no additional
           performance.
         o UCC 2-209(1) abolishes the pre-existing duty rule and allows
           good faith modification with no additional consideration (for
           sale of goods)
    • Adequacy of Consideration: RS79(b) – as long as a legal detriment as
      been suffered in exchange for the promise, consideration is present,
      and the court will not invalidate the contract on the grounds of
      inadequate consideration.
         o Inadequacy of Consideration from Unfair Bargaining: court may
           find inadequate consideration to override a contract grounded in
           fraud, duress, or unconscionability.
         o Sham/Nominal Consideration: reciting false consideration to bind
           a gratuitous price or consideration that is clearly lacking in
           value in comparison to the promise.  Strictly rejected by the
           restatement, but some courts will treat it as a clear intention
           of the parties to make the contract binding.
               ▪ Nominal consideration in options: much more flexible and
                 don’t really consider adequacy of consider in options
                 because the underlying intent is to advance the target
                 contract.
         o Past consideration is not adequate as consideration because at
           the time the detriment was incurred there was no contemplation
           of the future promise.
    • Mutuality and Illusory Promises
         o Illusory promise reserves so much discretion in one party that
           he has really promised nothing and there is no mutuality of
           contract.  One party obtains broad power to change his terms of
           the bargain.  Or a promise based on a condition that cannot
           occur (i.e. I will sell you my car if Elvis is returned to
           earth).
               ▪ A promise to B $100 for his skiis, and B promises to
                 accept unless he changes his mind.
         o Implied Terms to Cure Illusory Promise
               ▪ Wood v. Lucy, Lady Duff-Gorden: Judge implied agent’s
                 intention to use best efforts to earn profits in order to
                 pay Lady ½ of profits—her argument that there was no
                 contract since agent had not promised to do anything to
                 earn the profits promised to her was invalid.
                     • UCC 2-306(2) implying an obligation of best efforts
                       in exclusive dealing contracts involving goods.
         o Mutuality in Requirements/Output Contracts: parties may leave
           the quantity of goods open that quantity supplied will be
           determined by buyer’s requirements or seller’s output.
               ▪ Requirement contract is that the parties agree that the
                 supplier will supply as must as the buyer requires
               ▪ Output contract parties agree that the buyer will
                 purchase all that the seller is able to produce.
                     • There is an implied term of exclusive dealing and
                       good faith.
                     • UCC 2-306(1): exclusive dealing obligation and
                       imposes good faith and reasonable expectations test
                       on the party who determines the quantity.
    • Conditional Promises: A promises to give B his skiis, and B promises
      to pay for them if he wins the lottery.  This is not illusory and is
      in fact a valid conditional promise.  Although A has an absolute
      promise to B, B has given consideration that if an event occurs he
      will suffer a detriment.
    • Promises of Alternative Performance: as long as either performance has
      consideration, it is okay to have alternative performance.  I will
      sell you my skis other for $100 or you can mow my lawn for 2 mos.

Promissory Estoppel as Basis to Enforce Promise
    • Elements of PE:
         o A promise coupled with detrimental reliance on that promise.
               ▪ Sometimes considered a substitute for consideration.
         o RS90:
               ▪ Promise was made with reasonable expectation that the
                 promisee would rely on it.
               ▪ Promise did in fact induce reliance.
                     • Proof of reliance is not required for charitable
                       pledges and marriage settlements.
               ▪ Enforcement of the promise is necessary to avoid
                 injustice.
               ▪ Remedy may be limited as justice requires.
         o Ex. If uncle promises to pay for niece’s college if she goes,
           and then she goes, although this may merely be a gratuitous gift
           with a condition, the niece will incur a large debt if the
           promise is not enforced.  Similarly, if he promises to give her
           $20k to use as she would like as a gratuitous promise, and in
           reliance she goes to college and he reneges, she is entitled to
           enforcement on grounds of PE.
    • Remedy:
         o If PE is considered as a contractual doctrine (consideration
           substitute), relief should be expectation damages (place the
           promisee in the position he would have been in had the contract
           been performed; benefit of the bargain).
               ▪ In the example above, niece would get $20k.
         o if the focus is on protection of reliance and consider PE an
           independent theory of relief, damages should be reliance damages
           (restore the promisee to the position he was in before the
           promise was made).
         o In promissory estoppel reliance will always match expectation
           when reliance is in a thick market where entering into one
           contract means foregoing another contract.
               ▪ In example above, niece would get actual cost of 1 year
                 tuition which may be less than $20k.  Additional
                 considerations may be opportunity costs.
    • Equitable Estoppel (Estoppel in Pais): precludes a person from
      asserting a right when by deliberate words or actions he misled the
      other party into the justifiable belief that the right does not exist
      or would not be asserted. If A reasonably induced reliance, it does
      not matter whether or not there was a promise that reasonably induced
      that reliance (Promissory estoppel).
    • Promissory Estoppel – Gifts and Commercial Transactions:
         o When justice and fairness requires even if a formality of
           contract is not met (i.e. statute of frauds)
         o Devecmon v. Shaw: promissory estoppel binds the promisor for the
           cost of that reliance even if the promisee benefits the promise.
           Court treat uncle’s gift to pay for EuroTrip as bargain even
           though uncle saw as gift.  Reliance on a conditional promise
           without a bargain is enforceable under RS90.
    • PE w/ At-Will Employment Contracts: some courts will not uphold PE
      claims when the employment is terminated because there was no
      consideration by either party; however some courts will reimburse out-
      of-pocket expenses in reliance on job offer such as moving costs.
    • Reliance on an Option: RS 87(2) recognizes applying PE if a party
      detrimentally relies on an option for which no consideration was given
      and then the offer is revoked despite the option to hold it open.  An
      offer is binding as an option to the extent to avoid injustice if the
      offeror should reasonably expect to induce action or forbearance of a
      substantial character.  But the reliance must be reasonable on the
      part of the buyer to succeed.
Unjust Enrichment, Restitution, Moral Obligation
    • Restitution is the remedy for unjust enrichment which is the cause of
      action giving rise to the remedy.
         o one party has conferred a benefit upon another and is entitled
           to the value so that they other party is not unjustly enriched;
           if there is a quasi-contract (implied in law):
               ▪ Valid contract has been breached
                     • A buys B’s house—pays deposit. Expectation is 0
                       because the house was overpriced and the buyer can
                       cover at no economic loss. Restitution is the price
                       of the deposit paid.
               ▪ benefit conferred to an invalid contract
                     • same example but the contract for real property was
                       not in writing so did not satisfy the SoF; either way
                       the buyer is entitled to the deposit back.
               ▪ benefit conferred on a promise without consideration
               ▪ contract is rescinded
               ▪ no contract.
         o Contract implied in fact is not express but actions of parties
           suggests there is a contract.  If the price has not been agreed
           upon, assume the market price.
    • Officious Intermeddlers: cannot voluntarily impose your performance
      without permission and demand benefit on grounds of unjust enrichment.
         o Do not need to pay neighbor for mowing the yard, but if neighbor
           leaves a garden decoration and you accept it, you may need to
           pay for it.
         o plf has to prove that def knew plf expected to be paid and that
           the def knew the plf had a legal right to be paid in order to
           recover.
               ▪ Qui tacet consentire videtur ubi tractatur de ejus
                 commodo = he who is silent is considered as assenting, when
                 his interest is at stake.
               ▪ Officious Intermeddler Doctrine: where a person performs
                 labor for another without consent, however beneficial, he
                 cannot recover.
                     • EXCEPTION is for emergency aid: entitled to
                       restitution if he acted inofficiously and with intent
                       to charge for services necessary to prevent other
                       from serious bodily harm and had no reason to believe
                       person would not consent.
               ▪ Silence as acceptance: RSC 69 - when offeree fails to
                 reply, silence and inaction operate as acceptance only
                 when:
                     • offeree takes the benefit of offered services w
                       reasonable opportunity to reject and has reason to
                       know they were offered with expectation of
                       compensation
                     • offeror gave offeree reason to know assent may be
                       manifested by silence or inaction
                     • because of previous dealings, offeree should
                       reasonably notify offeror if he does not intent to
                       accept
    • When the benefit has not been requested by the recipient the only time
      it will not be officious is if: (1) an emergency has arisen, (2)
      immediate action is required, (3) advance assent is impracticable, (4)
      claimant has no reason to believe the recipient would not wish for the
      action to be taken.  The party may not be a volunteer or an
      intermeddler.
         o i.e. rendering emergency medical care to an unconscious patient.
         o Market value is the preferred measure of recovery
    • Moral Obligation/Material Benefit Rule/Promise for Benefit Received
      (RS): should prior benefit followed by a promise to pay be enforced
      even though consideration, restitution, and PE do not apply?
         o not normally enforced.

Interpretation
    • Indefiniteness: no contract is formed if a material element is left
      indefinite and uncertainty cannot be resolved by process of
      interpretation or construction.
         o UCC 2-204(3) and RS 33(2) emphasize that a contract should be
           treated as reasonably certain if the language of the agreement,
           interpreted in context and in light of applicable legal rules,
           provides enough content to establish an intent to contract, a
           basis for finding breach, and a means for providing a remedy.
         o Forms of Indefiniteness: vagueness, ambiguity, omission,
           irresolution
               ▪ Vague Terms: not clear enough to reasonably decipher
                 meaning
               ▪ Ambiguous terms: may have more than one meaning
                     • Resolve these terms with either “four corners – plain
                       meaning” approach or bringing in external evidence to
                       put meaning in context.
                     • Pacific Gas v. GW Thomas: the court reversed the
                       decision regarding the meaning of “indemnify” because
                       the plain meaning wasn’t sufficient to incorporate
                       the intent of the parties based on their prior
                       dealings.  Need to bring in external evidence for
                       meaning.
               ▪ Omitted Terms: leave out a material term such as price;
                 doesn’t necessarily mean that they did not agree—perhaps
                 they agreed to base it on good faith market value.
               ▪ Unresolved Terms/Agreements to Agree: if a material term
                 is left unresolved, such as the consideration to be paid
                 for the bulk of performance, no contract can be made.
                     • RS33 recognizes the distinction between the agreement
                       to agree on a material term v. the agreement to a
                       renewal option.  A provision for future agreement on
                       price strongly indicates a lack of intent to be
                       bound, but if the parties manifest intent to be
                       bound, the court should determine a reasonable price.
    • Interpretation (inferring meaning from facts)/Construction (meaning as
      matter of law)
         o RS 200: interpretation is the ascertainment of the meaning of a
           promise or agreement.  Evaluation of facts (evidence surrounding
           what parties said and did and circumstances surrounding
           communication) for purpose of deciding mutual intent.
           Construction goes beyond available facts to find not only what
           the parties meant but what they probably would have meant.
               ▪ Courts are justified in construction rather than
                 interpretation when (1) facts point to theory that parties
                 did intent a contract but not sufficient facts to draw
                 their intent, or (2) public policy considerations override
                 intent.
         o Beyond 4-corners, courts are willing to admit 5 areas of
           external evidence:
               ▪ (1) actual words used by the party in agreement(greatest
                 weight is given to the express terms)
                     • RS203(b) and UCC 2-208 give greatest weight to
                       express terms.
               ▪ (2) conduct and discussions when they negotiated
               ▪ (3) conduct in performing after contract was formed
                 (course of performance)
                     • UCC 2-208 and RS 202(4)
               ▪ (4) conduct in prior comparable transactions (course of
                 dealing), and
               ▪ (5) customs of market in which they are dealing (trade
                 usage)
                     • Frigaliment v. BNS: Buyer ordered a large quantity of
                       chicken from the seller, “US fresh frozen chicken,
                       grade A”.  Buyer claimed “chicken” meant frying
                       chicken, and seller denied breach for delivering
                       stewing chicken.
                          o Price term for cheaper chicken supported
                            seller’s argument since the larger birds were
                            sold below market price for frying chickens.
                          o Buyer lost because was not able to prove the
                            narrower meaning.
         o Gap Fillers that Supply more Specific Rights and Duties:
               ▪ UCC 2-312,314,315 imply certain minimum warranties that a
                 seller makes under defined circumstances regarding title to
                 and quality of goods
               ▪ UCC 2-305 infers that unspecified price of goods are
                 agreed to at a reasonable price unless the apparent intent
                 of the agreement is otherwise
               ▪ UCC 2-307 and 2-310 assumed a C.O.D. sale (cash on
                 delivery; pay upon receipt) if payment terms are not
                 expressed
               ▪ UCC 2-307, 308, 309 require that the goods be delivered
                 in a single lot at the seller’s place of business within a
                 reasonable time in requirement/output contract
               ▪ UCC 2-306(2) implies obligation of best efforts on both
                 parties when the contract imposes an obligation on one of
                 them to deal exclusively with the other
               ▪ RS205 mandatory obligation to perform and contract
                 reasonably and in good faith
         o Agreements to Record in Writing: consider other evidence such as
           if the writing was merely a formality but everything was agreed
           to orally, or the parties did not intend to be bound until a
           writing which would incorporate other terms.
         o Total Ambiguity and Misunderstanding: parties have diametrically
           opposite understandings of a term, each interpretation is
           entirely reasonable, no basis for preferring one over the other.
            If the uncertainty relates to a material element of the
           agreement, no contract can be formed.
               ▪ Raffles v. Wichelhaus: Buyer and Seller agreed to sale of
                 cotton on board the ship Peerless sailing from Bombay.
                 There were two ships called the Peerless leaving from
                 Bombay-- one to leave in Oct. and one to leave in Dec.
                 Seller thought it was the later ship and buyer thought it
                 was the earlier ship. Neither knew of the second ship.
                 Buyer purchased from the earlier ship and Seller sued when
                 buyer refused to accept cotton from the later ship.
                 Judgment for Buyer since no contract was formed.
                     • RS20 and 201: a material misunderstanding precludes
                       contract formation when the parties were equally
                       innocent in not reasonably realizing the
                       misunderstanding or equally guilty in realizing it
                       but saying nothing.

Statute of Frauds
    • Requires that certain types of contracts be in writing.
    • Contracts that fall within the statute:
         o Contract for the sale of land or interest in land
         o Contracts that cannot be performed in one year
         o Sales of goods (UCC 2-201(1) requires compliance with the SoF
           where the total price of the goods sold is $500 or more)
         o Suretyships (contracts for debt obligation of another)
         o Executors’ contracts to answer for a duty of the decedent
         o Contracts made upon consideration of marriage (such as financial
           arrangements)
    • Exceptions:
         o Partial Performance
               ▪ UCC 2-201(3)(a) where seller begins manufacture of goods
                 specially made and are not easily saleable.
               ▪ UCC 2-201(3)(c) allows enforcement of the contract only
                 to the extent payment for the goods has been made and
                 accepted, or goods have been delivered and accepted.
         o Promissory Estoppel
               ▪ RS 139: a promise is reasonably expected to induce
                 reliance, the inducement of justifiable reliance on the
                 promise by the other party, and the need to enforce the
                 promise to prevent injustice. (basically the same as RS90)

Parol Evidence Rule
    • Application: when an agreement is recorded in writing, and one party
      proffers evidence to prove a term that is not contained in the writing
      or to explain or expand a term in the writing.
         o Parole evidence is admitted when a term is incomplete,
           ambiguous, unclear—but the evidence admitted cannot contradict
           or add to the written agreement; it may only clarify.
         o If the agreement is complete and final record of parties’
           agreement, it is integrated.
               ▪ Courts are moving away from 4-corner approach.
                     • RS 216(2)(b) asks “whether the term is such as might
                       naturally be omitted”
                     • UCC 2-202(a) permits an otherwise integrated
                       agreement to be supplemented by evidence of course of
                       dealing and trade usage
    • Process: Parol evidence is offered⋄other party objects⋄judge decides
      issue of integration⋄ if fully integrated, no parol evidence is
      admitted.  If the agreement is not fully integrated⋄judge decides
      issue of consistency or if evidence contracts the writing⋄if
      inconsistent, judge refuses to admit parol evidence.  If consistent⋄
      judge admits parol evidence⋄factfinder hears and evaluates the
      evidence⋄if it is believed the parol term is established as part of
      the contract; if not believed the parol term is found not to exist.
    • Parole Evidence Rule and Interpretation: it restricts the extent of
      external information that may be allowed to help interpret the
      intentions of the contracting party.  Must first look at the written
      contract—the more clear the agreement, the more likely the rule will
      be strictly applied.  The less clear the agreement, the more likely
      parol evidence will be admitted.
    • Rationale for the Rule: when parties reduce their agreement to
      writing, they often intend the written record to be the final
      expression of their agreement.  They intend it to supersede anything
      that might have been proposed, discussed, or agreed to prior to
      execution of the writing but not ultimately recorded in the writing.
         o RS213 and UCC 2-202 sets out the CL Parole Evidence Rule.  To
           the extent that the parties execute a writing that is intended
           to be a final expression of their agreement, no parol evidence
           may be admitted to supplement, explain, or contradict it.
           However, to the extent that the writing is not a final and
           complete expression of agreement, consistent but not
           contradictory parol evidence may be admitted to supplement or
           explain those parts of the writing that have not been finally
           expressed.
    • Where the Parol Evidence Rule Applies:
         o Oral and written agreements prior to the final writing are
           subject and not admitted
         o Oral agreements contemporaneous to the final writing are
           subject; but
         o Written agreements contemporaneous are not subject.
         o Subsequent agreements are not subject to the rule—relevant when
           a subsequent agreement is made within the same process of
           formation of the contract and parties should ensure the writing
           reflects the change of any oral understanding
    • Exceptions to the Parol Rule: to show evidence of fraud/duress,
      mistake, and other forms of improper bargaining; permits parol
      evidence to show that agreement was subject to a condition precedent
         o RS 217: if a condition exists, the writing cannot be said to be
           integrated.
    • Collateral Agreement Rule: even where a writing is integrated, if the
      parol agreement is sufficiently distinct from the scope of the
      writing, it can be seen as a different contract related to but
      separate from the integrated written agreement.

Improper Bargaining
    • Objective test and Assent: Objective test of assent rather than an
      actual meeting of the minds protects the reasonable expectations of
      contracting parties.  However the objective test of assent may not
      reflect (what is apparent) what is actually going on such as assent
      due to duress.
    • Remedies for Improper Bargaining
         o Avoidance: party may sue to void the otherwise valid contract.
           In which case both parties may be entitled to restitution.
         o Adjustment of the terms to correct the consequences of improper
           bargaining if the harmed party does not wish to void the
           contract.
         o Damages: compensatory damages to remedy the effect of the
           improper bargaining.
    • Fraudulent/Negligent/Innocent Misrepresentations:
         o RS159: Misrepresentation is an assertion not in accord with the
           facts.
         o Fraudulent misrep. is made with knowledge and with intent to
           induce other party’s agreement; affirmative misstatement or
           concealing the truth
         o Negligent misrep. is honest but careless and breach of duty to
           ascertain facts
         o Innocent misrep. is incorrect but blameless
    • Duress:
         o RS 174: person’s manifestation of assent is physically compelled
           (forced signature)
         o RS 175, 176: one of the parties must make a threat, the threat
           must be improper, it must induce apparent assent, leaves the
           victim no reasonable alternative but to agree.
               ▪ Remedy: contract is voidable at claimant’s election, can
                 recover restitution
    • Unconscionability: when misrepresentation and duress do not apply;
      most commonly associated with power party and standard form contract
      (more difficult for a commercial entity to obtain relief but it is
      possible)
         o TEST: (1) unfairness in the bargaining process (procedural
           uncon.), and (2) unfairness in the resulting contract
           (substantive uncon.)
         o UCC 2-302 adopted the doctrine as a general rule applicable to
           all contracts for the sale of goods
         o RS 208 closely follows wording of 2-302.
         o Court has power to refuse to enforce, or to adjust contract by
           removing or modifying the unconscionable terms.
         o Test under the UCC: whether the contract or term is so one-sided
           as to be unconscionable.  The prevention of oppression and
           unfair surprise, but not related to allocation of risk.
         o RS test: gross inequality of bargaining power may satisfy the
           requirement if combined with substantively unfair terms.
               ▪ Williams v. Walker Thomas Furniture: defined
                 unconscionability as the absence of meaningful choice by
                 the one party resulting in contract terms unreasonably
                 favorable to the other.
                     • If a customer defaulted on payments for furniture,
                       the store could repossess all previous transactions
                       made as well.
         o Remedy: void, modify, damages.

Incapacity
    • Minors and mentally incompetent adults are said not to have the
      capacity to enter contracts.
    • Under 18: minor has the right to disaffirm the contract.

Mistake, Impracticability, and Frustration of Purpose
    • (1) Materiality: how fundamental is the difference between the
      expected and actual exchange? (2) Risk: which party should be made to
      bear the consequences of this defeat of original expectations?
    • Mistake applies when the contract is based on an erroneous belief at
      the time of contracting that certain facts are true.  Error causes one
      or both parties to manifest assent that would not have been given had
      the true facts been known.
         o Errors of fact
               ▪ Sherwood v. Walker: a cattle breeder believed a cow was
                 infertile and sold it as a beef cow for a fraction of its
                 value as a milk cow.  Before delivery, seller realized the
                 cow was pregnant and refused to deliver the cow to buyer.
                 Buyer sued to compel delivery but court allowed seller to
                 avoid the contract for mistake.
                     • Dissent thought the cows ability was a question of
                       judgment and not mistake.
               ▪ Firestone & Parson v. Union League of Phila.: sale of a
                 painting of “Albert Bierstadt” for 500k—several years later
                 found out it was not a true Bierstadt.  Buyer sued for
                 avoidance but lost bc of SoL.  Court held even if not for
                 the SoL, because it was not a mistake of fact but rather
                 value of art is a judgment not a fact.
         o Mutual Mistake: error is shared by both parties
               ▪ RS 151, 152, 154: mutual mistake is avoidable by the
                 adversely affected party if the following prereqs. are
                 satisfied:
                     • Parties shared the error of fact at time of
                       contracting
                     • Erroneous fact was a basic assumption on which the
                       contract was made.
                     • Mistake must have a material effect on the agreed
                       exchange of performances.
                     • The adversely affected party must not have borne the
                       risk of the mistake.
                          o Rule of caveat emptor (buyer beware) usually
                            applies to sale of real estate.
         o Unilateral Mistake: error of one party.
               ▪ RS 153: grounds for relief only if the equities favoring
                 release of the mistaken party outweigh the need to uphold
                 the reasonable expectations of the nonmistaken party.
                     • The error concerns a fact.
                     • The fact is a basic assumption on which the mistaken
                       party made the contract
                     • Mistake has a material affect on the exchange,
                       adverse to the mistaken party
                     • Mistaken party must not bear the risk of the mistake.
                     • Equities must favor relief for the mistake.
         o Relief for Mistake: avoidance + restitution.
               ▪ Possible reliance damages for nonmistaken party.
    • Impracticability and Frustration are concerned with the impact of
      supervening events on the transaction. They aim to provide relief when
      the basis of a fully consensual transaction is profoundly altered by
      some external event that occurs afterwards.
         o Impracticability: should excuse both parties from a contract.
               ▪ UCC 2-615 and RS 261-272 discuss impracticability
               ▪ After contract, event occurred, and nonoccurance was a
                 basic assumption of the contract: an unlikely, unforeseen,
                 or not contemplated event at the time of contracting
                 (includes reliance in good faith in existing regulates and
                 laws at time of contracting which was subsequently changed
                 and excuses parties from performance).
                     • Changes in economic conditions generally not held to
                       be an unforeseen event unless the change is very
                       drastic and not foreseen; whereas typical market
                       variation is foreseen.
               ▪ When the performance is not impossible but duly
                 burdensome (one party may actually lose money on the
                 contract) may allow the party to be excused.
               ▪ Relief for impracticability: when impracticability fully
                 defeats the feasibility of performance by a party, it is a
                 complete defense to that party’s failure to perform,
                 relieving him of the duty of performance and liability for
                 damages (restitution made if necessary to avoid unjust
                 enrichment).  Court may also delay performance or adjust
                 terms.
         o Frustration of purpose: provides relief when a party could not
           show that an unexpected supervening event rendered performance
           impossible yet destroyed value of transaction so underlying
           purpose of contract was frustrated.
               ▪ Krell v. Henry: Krell owned a flat on the route to be
                 taken on the coronation procession of Edward VII.  Henry
                 contracted to lease the flat on the 2 days of the
                 coronation. The king became ill before the coronation and
                 it was postponed. Henry did not use/pay for the flat and
                 Krell sued for the balance. The postponement was a
                 supervening event that had not reasonably been contemplated
                 by the parties at the time of contracting –performance was
                 not impossible but Henry was rightfully excused.
                     • Had the parties foreseen this contingency they would
                       have charged a higher price and agreed that the
                       landlord keeps it all if the coronation goes through,
                       and if not renter gets his money back.  If there was
                       only one coronation, unless the tenant paid some
                       premium he should not get his money back because the
                       landlord may not be able to cover. Neither can better
                       able bear the risk of the king being sick so it is a
                       good argument that they should split the money 50/50.
                        If the tenant cannot come he should bear the risk.
                          o Risk is allocated to whoever can better bear
                            the risk.  If the risk is not remote it is
                            presumably priced into the contract.

Conditions and Promises
    • Operation of a Promise v. Condition:
         o Substantial performance of an express condition will not satisfy
           the condition; no harm no foul may make it clear that if D does
           not perform bc P did not perform condition precedent, he did not
           suffer any forfeiture or undue hardship.
         o Unfair Forfeiture: should not be applied unless enforcement of
           the condition would result in an inequitable windfall or benefit
           to one of the parties at the expense of a disproportionate and
           harsh consequence to the other.
               ▪ RS 227: general preference in favor of interpretation
                 that will avoid forfeiture in cases when there is doubt
                 about the existence, scope, or nature of a condition.
               ▪ RS 229: forfeiture doctrine is to allow the court to
                 disregard an express condition of a technical or procedural
                 nature where the strict enforcement of the condition would
                 have the unfair impact.
                     • Oppenheimer v. Oppernheim: here the court could have
                       applied the doctrine of forfeuiture since it is not a
                       big deal that the procedural condition of a writing
                       was not satisfied; however the P were indemnified and
                       no harm no foul so nonetheless this case was a good
                       result.
    • Promise: an undertaking to act or refrain from acting in a specified
      way at some future time.
         o A contract for the sale of land involves the buyer’s promise to
           pay and the seller’s promise to convey title and possession to
           the land.
    • Condition:  is an event that is not certain to occur.  Promised
      performance under a contract is subject to a condition if the parties
      agree that the performance is contingent on the occurrence of the
      uncertain event.
         o Performance not due until and unless particular uncertain event
           occurs.
         o Purpose is to allocate risk as an escape clause if a condition
           does not occur.
    • Express Conditions: language of the contract expressly articulates the
      intent to make performance contingent on some event.
         o Language: “on condition that,” “subject to,” “provided that,”
           “if”
    • Conditions Implied in Fact: not ascertainable simply from the wording
      of the contract, but is established once contextual evidence is
      introduced to cast light on the parties’ intent.
         o *Exception to the parol evidence rule that can offer evidence to
           show the contract as a whole was subject to a condition
           precedent.
    • Construed Conditions/Constructive Conditions of Exchange: court will
      imply condition as a matter of law even without proof of parties’
      intent, if the circumstances and nature of the contract compel the
      conclusion that if the parties had addressed the issue, they
      reasonably would have intended the condition to be part of their
      contract.
    • Condition of One-Party’s Performance v. Condition of Contract as a
      Whole: a condition may be for the benefit of one of the parties and in
      turn waivable by that benefited party to proceed anyway.  However if
      it was a condition to both parties, then there is no waiver and
      neither party is bound if the condition fails.
         o Waiver is a voluntary abandonment of a contractual right.
    • Pure Conditions & Promissory Conditions: pure promises contain no
      conditions and pure conditions contain no promises.
         o Parties agree to sale of land upon success of rezoning
           application.  Rezoning is a pure condition.  Performance
           contingent on the other party’s performance is a promissory
           condition.
    • Conditions Precedent and Concurrent Conditions: if a condition must be
      fulfilled before the performance contingent upon it, it is a condition
      precedent.  If timing of performance is not specified, and counter-
      performances are capable of being rendered simultaneously, they are
      presumptively due at the same time and are concurrent conditions.
         o For concurrent conditions, each party must be ready, willing,
           and able to perform at the same time.
               ▪ Ex. Attorney’s services in the rezoning application is a
                 promissory condition precedent to client’s pure promise of
                 payment.
    • Conditions Precedent and Subsequent:
         o Precedent: a prerequisite to the duty arising; When a
           performance is subject to a condition precedent, the duty to
           perform is contingent on occurrence of the condition
               ▪ Ex. If zoning is granted, the condition precedent is
                 fulfilled and the duty to perform arises.
         o Subsequent: terminates a duty that came into being when the
           contract was formed.  If performance is conditioned subsequent,
           the duty to perform arises immediately upon contracting but is
           discharged if the condition occurs.
               ▪ Ex. If zoning is denied, buyer is discharged of duty to
                 perform because the condition subsequent has been
                 fulfilled.
    • Condition to Provide for Alternative Performances: instead of
      discharging the duty to perform if the condition is not satisfied, the
      parties can alter the performance and make it contingent on the
      condition.
         o Ex. If the land is rezoned, will pay 300k.  If not rezoned, will
           pay 100k.  Either way the buyer will pay for the land, but the
           consideration is contingent on the condition.
    • Ex. to sum it up:
         o Agreement that A will pay 2k on July 6, B will build deck on 7th
           and 8th, and balance paid after.
               ▪ Promissory condition precedent that A will make a down
                 payment
               ▪ Implied condition precedent to final payment
               ▪ Pure promise of final payment.
    • Nondisclosure:
         o Efficiency argument for disclosure: may save waste from second
           party searching for information that has already been discovered
           by first party.
         o Efficiency argument against disclosure: exploration costs may be
           high, and if a party discovers information they will reap the
           reward when they are able to receive the land. However if this
           must be disclosed the land could be auctioned off or sold
           competitively to other users who would likely value it as the
           one who discovered the information. Therefore, this can create
           negative incentives.
         o Information that is not acquired by a deliberate investment made
           for that purpose: Actor should be required to disclose
           information that was casually or adventitiously acquired.
           Mistake is a cost and disclosure will prevent these costs. This
           will not reduce incentives to search for information because a
           casual information search comes at practically no cost.
         o Information acquired by a deliberate investment made for that
           purpose: Disclosure should not be required when the acquisition
           of information entails costs that were deliberately incurred for
           the information finding purpose. To require disclosure would
           diminish incentives to search for new and valuable information.
         o Foreknowledge: Disclosure should not be based on the way the
           information was acquired but rather the relevancy of the
           information. Foreknowledge, will in due time be evident to all
           (changes in the market); whereas discovery is learning something
           that possibly already exists though hidden from view until
           discovery is made (oil on land). Gains of discovery increase
           wealth to the discovery, but gains from foreknowledge are
           redistributive and not increasing social wealth. Costs of
           acquiring foreknowledge exceed social value and law should not
           provide incentives for deliberate acquisition.
               ▪ contracts based upon one party’s knowledge of productive
                 information should be enforced, whereas contracts based
                 upon redistributive information should not be enforced
                 because acquiring that information is a social waste and to
                 provide disincentives it should be required to be
                 disclosed.
                     • HYPO: You shoot your gun accidentally and find out
                       your neighbor has oil on their land.  You do not tell
                       them and offer to buy their house at FMV (not
                       including the cost of oil).  You should be required
                       to disclose because the information was acquired
                       adventitiously.

Breach and Repudiation
    • Nature of the Breach:
         o To establish a breach:
               ▪ Determine existence and content of contractual
                 obligations
               ▪ Date promised performance falls due
               ▪ Did performance comply with promise
               ▪ Severity of breach and promisee’s rights
         o Basic Remedies
               ▪ If breach is total and material⋄ promisee may: withhold
                 performance, terminate, claim full damages
               ▪ If breach is material but not total⋄ promisee may:
                 suspend performance, await cute, claim compensation for
                 loss suffered
               ▪ If breach is not material (substantial
                 performance)⋄promisee may: claim compensation for loss
                 suffered.
         o Material Breach: failure or deficiency in performance is so
           central to the contract that it substantially impairs its value
           and deeply disappoints the reasonable expectations of the
           promisee.
               ▪ RS 241:to the extent to which the injured party will be
                 deprived of the benefit that he reasonably expected, the
                 extent to which the injured party can be adequately
                 compensated for the deprivation, the extent to which the
                 breaching party will suffer forfeiture, likelihood that
                 breaching party will cure, extent to which the breaching
                 party acted in good faith and fair dealing.
               ▪ RSC 237: if a party has substantially performed any
                 breach by her cannot be material; if a party has committed
                 a material breach her performance cannot be substantial
         o Substantial Performance: is a partial, non-material breach that
           does not excuse the non-breaching party from the contract.  If a
           deposit of 2000k is to be paid but 1000k is paid and the next
           1000k is paid the next morning before work begins, assuming the
           money was not to buy materials, this would be trivial and not
           excuse the other party from performance.
               ▪ Jacob & Young v. Kent: builder completed construction of
                 a grand county home for 77k.  Owner refused to pay the
                 balance on the contract price of roughly 3k on the grounds
                 that the builder breached by installing plumbing pipe of
                 the wrong brand, and the proper brand was specified in the
                 contract but the builder overlooked it.  There was no
                 difference between the pipes used but buyer refused to pay
                 because he said cost of replacement was more than balance
                 due. Held: the breach was inadvertent and trivial. No
                 indication that the specified brand was a significant term
                 (wasn’t the heir to the Reading Pipe Company, or arch
                 enemies with the owner of the brand used)
                     • Notice (as required in Hadley) does not matter here
                       because the mistake was not willful.
                     • If the builder would bear the cost of an immaterial
                       mistake he would charge more for his services because
                       it would increase the cost of his work; if he was not
                       aware of the breach or later became aware and tried
                       to mitigate the costs there would be no additional
                       cost for the work, but if the builder purposefully
                       breaches either as a joke or to pocket the difference
                       of the cheaper material there would be disgorgement
                       and payment for the breach.
               ▪ Peevyhousev. Garland Coal: Plaintiffs leased their
                 farmland to Defendant for strip mining on the condition
                 that Defendant fill in the holes Defendant made after the
                 completion of the mining. Defendant did not fill in the
                 holes.  Defendants did not do the remedial work promised.
                 The trial court established that the remedial work would
                 cost more than $29k and that the value of the farm would
                 increase by $300. The court awarded Plaintiffs $5k. Held:
                 Damages for breach of contract cannot be so excessive that
                 they cause economic waste.  Plaintiffs may not gain more in
                 damages for a breach of contract that actual performance is
                 worth. Contract price is a limit to expectation damages.
                     • What about emotional attachment? This is not a fair
                       case.
               ▪ Sometimes what is considered substantial performance v.
                 material breach is extremely circumstantial
                     • HOUSE PAINT HYPO: if you paint someone’s house the
                       wrong color, even if the shade is only slightly off,
                       it is not substantial performance; but if you paint a
                       factory the wrong color it is substantial
                       performance.  Idiosyncratic value comes into play.
                       Someone’s house is very different than a factory,
                       because aesthetic value matters.
               ▪ Relief for Substantial Performance and Adjustment to
                 Avoid Unfair Forfeiture: party is not entitled to withhold
                 return performance but may claim damages for breach – cost
                 to place the promisee in the position he would have been in
                 had the performance been in full compliance with the
                 contract.
                     • If this does not represent the actual measure and
                       would result in a windfall for the promisee, or is
                       grossly disproportionate (such as in Jacobs v.
                       Young), the court may adjust damage to true harm
                       –difference in value of promised and performed or the
                       loss in value from the breach.
                          o However, if the breach is willful, the damages
                            may not be so forgiving.
         o Partial Breach and Cure: a material breach that is partial since
           the breaching party can prevent total breach by taking remedial
           action within a reasonable time by curing the breach.
         o Substantial Performance Under the UCC:
               ▪ UCC 2-601 Perfect tender Rule: permits buyer to reject
                 goods that fail to conform exactly to the contract.
               ▪ UCC 2508: mitigates harshness of Perfect Tender Rule and
                 allows for cure.
         o The Breaching Party’s Recovery Following Material Breach:
               ▪ In substantial performance the breaching party is
                 entitled to return performance offset for damages caused by
                 partial breach.
               ▪ Material or total breach operates as renunciation of the
                 contract and breacher forfeits all rights under it and has
                 no claim to enforce; it terminates the other party’s
                 obligation to render performance.
                     • May recover restitution on a theory of unjust
                       enrichment.
                          o RS 374: a right to restitution in favor of a
                            material breacher to the extent that the
                            benefit conferred exceeds the promisee’s claim
                            for damages.
         o Anticipatory Repudiation: repudiation may occur between time
           contract is made and performance is due.  For example, if one
           party lets the other party know before the date of performance
           that he has no intention of performing, he has repudiated.
           Promisor must clearly, unequivocally, and voluntarily
           communicate an intention not to render the performance promised
           when it falls due.
               ▪ Traditionally: there was no breach until the date of
                 performance despite anticipated repudiation, so there was
                 no way for the other party to mitigate losses—could not
                 enter into other, conflicting contracts and may even have
                 had to begin performance if his performance was precedent
                 so that he himself wouldn’t be in breach.
               ▪ Modern Approach: Anticipatory repudiation allows other
                 party to treat manifestation of intent to breach
                 immediately as a breach in order to mitigate losses and
                 harm.
                     • No right of termination unless it is evident that the
                       breach is a material and total breach.
                     • Repudiator can retract but not after the promisee
                       gives notice of acceptance of repudiation.
                     • Hochester v. De La Tour: (Plaintiff/courier) entered
                       into a contract with De La Tour (Defendant) to
                       accompany and assist Defendant on a three-month trip.
                       Before the trip was scheduled to begin, Defendant
                       informed Plaintiff that he no longer needed him.  A
                       party who receives clear notice of repudiation of a
                       contract before performance is due may bring suit
                       immediately, before the performance is due.  When
                       parties enter into a contract for future performance,
                       a relationship is established when there is an
                       implied promise that both parties will act consistent
                       with their contract and not interfere with its future
                       performance.
    • Ability to Perform: RSC 254: the duty of a repudiating party to pay
      damages is discharged if it subsequently appears that there would have
      been a total failure of performance by the injured party (he was not
      willing, able, and ready to perform and time his performance was due).

Remedies for Breach of Contract
    • Expectation Interest: the fundamental goal of the remedy for breach is
      to cure the disappointed expectations by giving the victim of the
      breach exactly what was promised and justifiably expected under the
      contract.  Seeks to compensate for something the plaintiff should have
      had.
         o Give P benefit of the bargain; protect P’s expectation interest;
           purpose of contract remedies is to place the victim of breach in
           the position he would have been in had no breach occurred.
               ▪ Court can enforce reasonable expectations by ordering
                 specific performance.
                     • Reserved for unusual cases where damages are shown to
                       be incapable of adequately compensating P.
               ▪ Why does law prefer $ expectation over specific
                 performance? It is bad policy to force personal services,
                 sometimes it is not practical
                     • Only consider economic harm (emotional harm is for
                       torts)
                          o Efficient Breach: D’s cost to perform would
                            exceed the benefit that performance would give
                            to both parties.  D makes enough gains by
                            breaching to enable him to pay compensatory
                            damages to P and still come out with a net
                            gain.  This increases economic efficiency by
                            making the D better off without making the P
                            worse off.
                                ▪ Market must be competitive (thick),
                                  transaction costs low, and unlikely to
                                  occur in actuality or to know that the
                                  breach is efficient at the time.
         o Measurement of Expectation: what the P had the right to expect
           and what he actually got.  Includes (1) losses caused by the
           breach, (2) gains as a result of termination of the contract.
           Losses less the gains.
               ▪ RS347:
                     • Damages = P’s loss in value cause by D’s
                       nonperformance (difference between contractual value
                       of what P received from what he was promised) + any
                       other loss (includes consequential and incidental
                       damages) – any cost or loss the P avoided by not
                       having to perform.
                     • Hawkins v. McGee // π had scar tissue on hand from
                       prior injury, Δ (the fam doctor) solicited fam to let
                       him do skin grafting to remove the scar - Δ said “I
                       will guarantee to make the hand a hundred percent
                       perfect hand”- π fam took as warranty, Δ said no
                       reasonable man would understand it as a contract //
                       Court held that if taken at face value a reasonable
                       person would assume a warranty to a perfect hand – π
                       accepted grafting proposition = acceptance of K //
                       expectancy damages b/w perfect hand and hairy hand
                       and incidental losses but not damages for pain and
                       suffering b/c he entered into K allowing for this
                       possibility under surgery // Takeaway:  a doctor’s
                       claims usually do not form a K but he guaranteed 100%
                       perfect which = legally enforceable promise
                          o Rule- expectation interest should be used when
                            a warranty is given.
                          o Exception: if promise is not taken as a
                            guaranty (Van Zee v Witzke), then there are no
                            damages, as the doctor did not breach the
                            contract
                     • HYPO: Thel agrees to sell painting to Rachel for
                       $20M, then sells to Lauren for $35M—Rachel never yet
                       paid the $20M—but what should she be entitled to?
                       $15M because if Rachel valued it for less than $35M
                       she would’ve sold it.
                          o We want efficient reliance, not excessive
                            reliance.  So if you offer to drive someone to
                            an appointment and they miss it, they should
                            not have to pay value of what was expected from
                            appointment.
                     •
               ▪ UCC SELLER’S REMEDIES:
                     • 2-709 seller can claim price of goods only when buyer
                       accepts or incapable of being resold.
                     • 2-706 permits an aggrieved seller to enter a
                       substitute transaction by selling the goods and,
                       provided that the resale is made in good faith and in
                       a commercially reasonable manner, can recover the
                       shortfall between contract price and resale price.
                     • 2-708(1) damages may be based on a hypothetical
                       resale if cover is not actually made, and seller may
                       recover contract price/market price of goods at the
                       time and place at which delivery was to be tendered.
                     • 2-708(2) permits recovery of seller’s gross profits
                       plus reliance expenses, less allowance for payments
                       or salvage if contract/market damages are inadequate.
               ▪ UCC BUYER’S REMEDIES:
                     • UCC 2-712 buyer’s damages are the difference between
                       the cover price and contract price
                     • UCC 2-713 allows buyer difference between contract
                       price/higher market price (at time buyer learned of
                       breach) if no cover.
                     • UCC 2-714 is when buyer accepted defective goods or
                       not in conformity and damages are loss suffered by
                       buyer.
         o Foreseeability: what a party would have foreseen has they
           contemplated the course of likely future events—realize the
           likely damages that would result from his breach.
               ▪ Hadley v. Baxendale: owners of a mill delivered a broken
                 mill-shaft to a courier for shipment to the manufacturer so
                 that it could be used as a model for a new one.  There was
                 a delay in shipment.  This was the mill’s only shaft so the
                 delay idled the mill for longer than necessary. Owners sued
                 the carrier for damages based on profit lost when mill
                 could not operate during delay.  Held: the carrier was not
                 accountable for the loss because it was not told it was the
                 only shaft and had no way of knowing that a delay would
                 cause the mill to lie idle.  Damages for breach may only be
                 recoverable if one of two conditions is met: (1) either the
                 loss must be one that may fairly an reasonably be
                 considered to arise naturally in the ordinary course of
                 things from the breach, (2) or it must be one that may
                 reasonably be supposed to have been contemplated by the
                 parties at the time of contract as a reasonable consequence
                 of breach.
                     • RS 351 and UCC 2-715.
               ▪ Mitigation: RS 350: losses are not recoverable if P could
                 have avoided them without undue risk, burden or
                 humiliation, but P should not be precluded from recovery to
                 the extent that she made reasonable but unsuccessful
                 efforts to avoid harm.
    • Reliance and Restitution: aim to refund expenses wasted or losses by P
      in reliance on the contract, restoring her to status quo ante –
      position she would have been in had no contract been entered into.
         o Ex. Seller contracts to sell house for 150k. buyer paid 5k
           deposit. B then hired an architect for 1k. If S breaches, and B
           finds replacement house for 155k, she will be entitled to
           expectation of 11k bc that is the 5k increase, plus 6k reliance
           damages.  If B can purchase substitute for same or less price,
           her expectation damages would be 0, reliance 6k.
         o While expectation is made up of expected profit on the whole
           contract plus expenditure already made in reliance (essential
           reliance)
         o If the D can prove that P would have suffered a loss in the
           event of complete performance, P’s reliance damages should cut
           back to bring his recovery into line with his expectations.  In
           these cases, expectation is actually negative.
               ▪ Not always fair though, because sometimes people have
                 idiosyncratic value that may diminish the value of their
                 property but reliance costs have been incurred in
                 preparation for the contract with this emotional value.
         o Essential reliance damages: expense incurred in performing an
           obligation under the contract
         o Incidental reliance damages: expenditure incurred in consequence
           of having made the contract and for the purpose of using or
           enjoying the benefits expected under it
         o Restitution damages: restore to the P value of the benefit
           unjustly conferred on D in absence of contract.
               ▪ Market value (quantum meruit) of service is a recoverable
                 addition that is generally unavailable only with
                 restitution
                     • Ex. Painter beings a job and spend $100 on materials
                       (reliance of 100, but restitution of 100 + quantum
                       meruit)
    • Liquidated Damages: a term in a contract under which the parties agree
      that in the event of a breach, the breacher will pay damages in a
      specified sum or in accordance with a prescribed formula.
         o Liquidated damages clauses will be struck down if they are
           punitive rather than an adequate remedy after breach.  Valid if
           it is a reasonable advance determination of probable harm.
         o RS 356 and UCC 2-718: two point test to determine if fixed
           damages are reasonable in light of anticipated harm and should
           be upheld: (1) whether the parties made a reasonable forecast of
           harm at the time of contracting (2) if the amount of damages is
           reasonably close to the actual damages suffered
         o Liquidated damage clauses that set the damage very low is not
           typically rejected because is not deemed punitive
         o Damage limitation provisions are enforceable unless they are
           unconscionable.

Assignment, Delegation, and Third Party Beneficiaries
    • When a party assigns (transfers) rights under a contract, ownership of
      those rights passes to the recipient who is substituted for the
      assignor as the person entitled to performance.
    • Incidental beneficiaries are third parties who obtain some benefit
      from a contract but are in no way a party to the contract.
    • Third party beneficiary has the independent right to enforce the
      contract.